A Template for How to Close or Sell a Health Club

In part one of this series on closing/selling a club, I discussed the pros and cons, as well as the benefits and pitfalls associated with either permanently closing a club or selling it to a new ownership group. In doing so, I shared the story of two club closings, one a well-handled club closing, and the other, a poorly handled closing.

In the second part, I am sharing tips on how to prepare for the possible sale or closing of a club, so that the involved stakeholders walk away with a sense of closure and a belief that the business considered their needs and interests.

It all begins with creating a plan and working your plan. Nearly every club operator has an emergency plan in place to deal with in-club emergencies, such as member and employee injuries, fires and natural disasters. Furthermore, good operators make it a habit to rehearse their emergency response plan so that when the real deal occurs, they can execute on autopilot.

Unfortunately, most club owners do not do the same for their business, often because they do not envision their business facing a life-threatening emergency. As we all know, businesses regularly fail, and when they do, having a well-prepared response plan can lessen the negative consequences and potentially insure that the ownership group can continue to do business another day. Likewise, when selling a business, you need to have a plan in place so that the transition process that occurs takes into consideration the club’s members and employees, as well as the ownership group’s potential interest in opening another business in the future. Although a business emergency plan that addresses the closure or sale process cannot be physically rehearsed, it can be reviewed regularly by ownership, which in the future will go a long way toward protecting the interests of all the parties involved.

Here is what goes into a plan for club closure or ownership change:

1. Create a strategy to assist employees with the transition. When a club closes its doors or when new ownership takes over, employees typically experience the greatest anxiety. For employees, the prospect of losing their job or, in the best case, having to deal with a new employer who may not provide the same quality workplace environment, often leads to behaviors that have dire consequences for the business. As a result, every operator needs to have a strategy in their plan that addresses:

Payment of unused and accrued personal and vacation time. At all of my former companies, we had policies to address this and made sure to adhere to them, even if it cost us money.

Assistance to employees in finding a new job or transitioning to a new owner. If you are closing the club, then you should have a plan in place to assist employees in finding new work in the industry or in the marketplace. At one club closing, we actually offered a job fair for our employees. In every case, you should provide the proper references for employees so it makes it easier for them to find work.

If the club has been sold, then the seller should arrange for existing employees to keep their jobs for a transitional period until the new owner has an opportunity to evaluate the performance of the employees. A typical transitional period may be 90 days.

2. Create an employee communication strategy around the closure or sale. The failure to communicate the pending closure or sale to employees is the number one mistake that most business owners make. Most often, the desire not to provide employees with sufficient notification comes from a belief that if one provides notice too soon in advance, employees will react negatively and potentially sabotage the process. Like any separation process, employees will go through an emotional roller coaster that includes disbelief and shock, anger and depression. Each of these emotional reactions can drive behavior that is damaging to the organization and the individual employee. Therefore, it is important to have a communication process that lessens these emotional responses and, more importantly, demonstrates that you as an owner understand the gravity of the situation from their perspective. When communicating the closure or sale, do so only after you have prepared plans for assisting each employee with the transition. Any announcement should be done verbally, preferably in a group meeting, followed by both department and individual one-on-one sessions, if possible. Making the announcement via a group email or company-delivered memo demonstrates a complete lake of compassion and respect for employees. You can and should send out a follow-up communication via email to summarize the content of a previously delivered verbal communication. Ideally, you want to make this announcement at least 30 days in advance.

3. Create a strategy to assist members with their membership privileges and payments. The closure of a club is guaranteed to create a variety of negative emotions among members, including shock, despair and anger. Concurrently, these negative emotions can lead to undesirable behaviors ranging from complaints to sabotage to legal suits. If you care about your members, your legacy and your reputation in the marketplace, you need to have a strategy in place to deal with the club members. A member strategy should include:

Steps you will take to compensate members for any prepaid dues or prepaid payments made for services if they will be unable to transfer their membership.

Steps you will take to transfer a member’s privileges to a new club (e.g., another club in the company network or a competitor’s club). This must be well thought out.

4. Create a member communication strategy around the closure or sale. Members are owed the proper notice whenever a club is closed. When communicating with members, the communication needs to go beyond simply stating the club is closing or being sold and address the following:

You should attempt to make the communication to your members personal, such as mailing a letter from management to each member. Once a personal communication has been sent out, then you can use your website, social media pages and in-club systems to reinforce the original message. The communication to members should be coordinated with the communication to employees. Ideally, you should make this announcement at least 30 days in advance.

5. Create a public communication strategy. Since the media will jump on every opportunity to bash the club, and in particular ownership, when a club is closed or sold, ownership must have a well-defined strategy for communicating the change to the media. The goal of this communication is to put a positive spin on a negative situation. Failing to address the media and community in your plan is likely to lead to adverse publicity, including irreparable damage to an owner’s or brand’s reputation.

6. Create a strategy for dispersing your assets. Obviously, if you are selling your club, then this will be addressed in the sale agreement. If you are closing the club instead, you should have a strategy for selling assets that can offer capital to help offset any outstanding liabilities. For example, can you find buyers for your equipment, and then use those funds to address other pressing liabilities?

The above strategies should not be considered gospel. Rather, they should be seen as guidelines that will assist owners and management when either the grim reaper comes calling on your businesses, or a deal you “cannot refuse” falls into your lap. In either situation, the way you depart is important.

Stephen Tharrett is president of Club Industry Consulting. He is the author of four books and is a former board member and president of IHRSA. Tharrett is involved in public speaking, having served as an international keynote speaker at conventions in Argentina, Australia, Brazil, China, England, Ireland, Japan, Russia, Singapore, Spain and Turkey, as well as domestic conventions such as Athletic Business, CMAA, IHRSA and SIBEC. He can be reached atSteve@clubindustryconsulting.com.